Gray Reports Record Operating Results for the Three and Nine-Month Periods Ended September 30, 2015

Nov 03, 2015, 06:00 ET from Gray Television, Inc.

ATLANTA, Nov. 3, 2015 /PRNewswire/ -- Gray Television, Inc. ("Gray," "we," "us" or "our") (NYSE: GTN and GTN.A) today announced results of operations for the three and nine-month periods ended September 30, 2015. Gray achieved record revenue during the three and nine-month periods ended September 30, 2015, and Gray's free cash flow per diluted weighted average share was $0.22 and $0.96, respectively, and net income per diluted weighted average share was $0.09 and $0.36, respectively. Excluding the special charges discussed below relating to the termination of certain national sales representation agreements and transaction costs relating to our closed and pending acquisitions, our net income per diluted weighted average share was approximately $0.18 and $0.45 for the three and nine-month periods ended September 30, 2015, respectively.

Highlights:

  • Record Revenue - We achieved record revenue of $151.1 million and $427.9 million for the three-month and nine-month periods ended September 30, 2015, respectively.  In addition, our retransmission revenue reached new record levels of $39.3 million and $112.5 million for the same periods.
  • Total Leverage Ratio – As of September 30, 2015, our total leverage ratio, as defined under the terms of our senior credit facility, was 4.9 times on a trailing eight-quarter basis, netting all cash on our balance sheet against our debt balance.
  • Acquisitions – As previously announced, between July 1 and September 1, 2015, we added seven television stations in four markets to our operations. The aggregate purchase price for these stations was approximately $184.4 million, all of which was funded from cash on hand.
  • Schurz and Related Transactions Announced – On September 14, 2015, we announced that we have agreed to acquire all of the television and radio stations of Schurz Communications, Inc. (the "Schurz Acquisition") for approximately $442.5 million including working capital. On October 1, 2015, we announced the sale of certain television stations to facilitate regulatory approvals for the Schurz Acquisition, and we simultaneously announced the acquisition of two new television stations as part of those divestiture transactions. On November 2, 2015, we announced that we have reached agreements with three radio broadcasters to divest the Schurz radio stations to those third-parties upon closing the Schurz Acquisition.
  • Transaction Costs – In connection with the acquisitions discussed above, we incurred professional expenses of approximately $3.8 million and $4.5 million for the three and nine-month periods ended September 30, 2015, respectively.  These expenses are included in our corporate and administrative operating expenses. We did not include the majority of these expenses in our previously issued guidance for the third quarter of 2015 because we could not predict those expenses at the time we issued that guidance.
  • Termination of National Sales Agreements – On August 31, 2015, we announced that effective on January 1, 2016, we will terminate nearly all of our remaining national advertising sales representation agreements. We anticipate expense savings due to the termination of these agreements of approximately $8.0 million to $9.0 million beginning in 2016, with net savings continuing thereafter. We recorded a charge of approximately $6.1 million to our third quarter 2015 broadcast operating expenses to reflect the anticipated termination fees. We did not include this charge to expenses in our previously issued guidance for the third quarter of 2015 because we had not then decided to terminate those agreements.

 

Selected Operating Data on As-Reported Basis:

Three Months Ended September 30,

% Change

% Change

2015 to

2015 to

2015

2014

2014

2013

2013

(dollars in thousands, except per share data)

Revenue (less agency commissions):

Total

$     151,102

$   131,702

15 %

$     88,288

71 %

Political

$         4,594

$     22,029

(79)%

$       1,377

234 %

Operating expenses (1):

Broadcast

$       98,921

$     73,218

35 %

$     53,516

85 %

Corporate and administrative

$       10,022

$       5,271

90 %

$       4,470

124 %

Net income

$         6,609

$     13,940

(53)%

$       7,073

(7)%

Non-GAAP Cash Flow (2):

Broadcast Cash Flow

$       52,667

$     58,429

(10)%

$     34,603

52 %

Broadcast Cash Flow Less

Cash Corporate Expenses

$       43,434

$     53,885

(19)%

$     30,388

43 %

Free Cash Flow

$       15,609

$     25,309

(38)%

$     13,319

17 %

Free Cash Flow Per Share:

Basic

$           0.22

$         0.44

$         0.23

Diluted

$           0.22

$         0.43

$         0.23

Nine Months Ended September 30,

% Change

% Change

2015 to

2015 to

2015

2014

2014

2013

2013

(dollars in thousands, except per share data)

Revenue (less agency commissions):

Total

$     427,869

$   330,248

30 %

$   250,742

71 %

Political

$         7,950

$     33,437

(76)%

$       2,769

187 %

Operating expenses (1):

Broadcast

$     272,213

$   199,604

36 %

$   158,817

71 %

Corporate and administrative

$       23,313

$     21,618

8 %

$     13,587

72 %

Net income

$       24,314

$     16,808

45 %

$     13,087

86 %

Non-GAAP Cash Flow (2):

Broadcast Cash Flow

$     156,635

$   129,578

21 %

$     91,419

71 %

Broadcast Cash Flow Less

Cash Corporate Expenses

$     135,652

$   110,766

22 %

$     79,551

71 %

Free Cash Flow

$       64,988

$     41,644

56 %

$     27,021

141 %

Free Cash Flow Per Share:

Basic

$           0.97

$         0.72

$         0.47

Diluted

$           0.96

$         0.71

$         0.47

(1) Excludes depreciation, amortization, and loss on disposal of assets.

(2) See definition of non-GAAP terms and reconciliation of the non-GAAP amounts to net income included elsewhere herein.

 

 

Selected Operating Data on Combined Historical Basis (3):

Three Months Ended September 30,

% Change

% Change

2015 to

2015 to

2015

2014

2014

2013

2013

(dollars in thousands, except per share data)

Revenue (less agency commissions):

Total

$     155,065

$   152,073

2 %

$   129,871

19 %

Political

$         4,940

$     25,231

(80)%

$       1,816

172 %

Operating expenses (1):

Broadcast

$     100,964

$     85,602

18 %

$     80,203

26 %

Corporate and administrative

$       10,022

$       5,271

90 %

$       4,470

124 %

Net income

$         8,276

$     16,370

(49)%

$     12,646

(35)%

Non-GAAP Cash Flow (2):

Broadcast Cash Flow

$       58,913

$     65,668

(10)%

$     48,911

20 %

Broadcast Cash Flow Less

Cash Corporate Expenses

$       49,680

$     61,124

(19)%

$     44,696

11 %

Operating Cash Flow as defined in

the Senior Credit Facility

$       47,958

$     63,634

(25)%

$     49,501

(3)%

Free Cash Flow

$       22,616

$     35,241

(36)%

$     24,387

(7)%

Free Cash Flow Per Share:

Basic

$           0.32

$         0.61

$         0.42

Diluted

$           0.31

$         0.60

$         0.42

Nine Months Ended September 30,

% Change

% Change

2015 to

2015 to

2015

2014

2014

2013

2013

(dollars in thousands, except per share data)

Revenue (less agency commissions):

Total

$     454,016

$   429,022

6 %

$   373,424

22 %

Political

$         8,468

$     40,468

(79)%

$       4,086

107 %

Operating expenses (1):

Broadcast

$     289,435

$   258,573

12 %

$   237,647

22 %

Corporate and administrative

$       23,313

$     21,618

8 %

$     13,587

72 %

Net income

$       31,297

$     40,654

(23)%

$     29,648

6 %

Non-GAAP Cash Flow (2):

Broadcast Cash Flow

$     169,966

$   175,882

(3)%

$   134,105

27 %

Broadcast Cash Flow Less

Cash Corporate Expenses

$     148,983

$   157,070

(5)%

$   122,237

22 %

Operating Cash Flow as defined in

the Senior Credit Facility

$     154,388

$   162,662

(5)%

$   134,511

15 %

Free Cash Flow

$       83,266

$     87,649

(5)%

$     58,730

42 %

Free Cash Flow Per Share:

Basic

$           1.24

$         1.51

$         1.02

Diluted

$           1.23

$         1.50

$         1.01

(1) Excludes depreciation, amortization, and loss on disposal of assets.

(2) See definition of non-GAAP terms and reconciliation of the non-GAAP amounts to net income included elsewhere herein.

(3) See the following discussion, "Effects of Acquisitions on Our Results of Operations", for definition of this term.

 

Effects of Acquisitions on Our Results of Operations

Since October 1, 2013, we have completed 16 acquisition transactions and two divestiture transactions. These transactions have added a net total of 31 television stations in 20 television markets, including 15 new television markets, to our operations. On July 1, 2015, we completed the following five acquisition transactions that added six television stations to our operations:

  • KOSA-TV (CBS) in Odessa, Texas;
  • KMVT-TV (CBS) and KSVT-LD (FOX) in Twin Falls, Idaho;
  • Certain non-licensed assets including  programming streams of WFXS-TV (FOX)  in Wausau, Wisconsin, whose programming streams are now broadcast on our digital low power television station in Wausau, WZAW-LD;
  • WAGM-TV (CBS/FOX) in Presque Isle, Maine; and
  • Certain non-licensed assets including programming streams of KVTV-TV (CBS) in Laredo, Texas, whose programming streams are now broadcast on our digital low power television station in Laredo, KYLX-LD.

On September 1, 2015, we announced and completed the initial phase of our acquisition of KCRG-TV (ABC) in Cedar Rapids, Iowa (the "Cedar Rapids Acquisition") by acquiring certain non-licensed assets of that television station and entering into a local programming and marketing agreement (the "LMA") with the licensee. We completed the remaining phases of the Cedar Rapids Acquisition and terminated the LMA on November 1, 2015.

Collectively, we herein refer to the stations acquired on July 1, 2015 and the Cedar Rapids Acquisition as the "2015 Acquired Stations." During 2014, we completed seven acquisitions, which transactions collectively added a total of 22 television stations and 12 markets (10 new markets) at various times during that year, and we refer to the stations acquired in those acquisitions as the "2014 Acquired Stations." During the fourth quarter of 2013, we completed two acquisition transactions that together added five television stations in four markets (three in new markets), and we refer to the stations acquired in those acquisitions as the "2013 Acquired Stations." Unless the context of the following discussions requires otherwise, we refer to the 2015 Acquired Stations, the 2014 Acquired Stations and the 2013 Acquired Stations, collectively, as the "Acquired Stations."

Due to the significant effect the Acquired Stations have had on our results of operations, and in order to provide more meaningful period over period comparisons, we also present herein certain financial information on a "Combined Historical Basis." Combined Historical Basis reflects financial results that have been compiled by adding Gray's historical revenue and broadcast expenses to the historical revenue and broadcast expenses of the Acquired Stations as if they had been acquired on January 1, 2013 (the beginning of the earliest period presented), but it does not include any adjustments for other events attributable to the acquisitions, except that "Combined Historical Free Cash Flow" gives effect to the financings related to acquisitions completed in 2014 and 2013, as if the financing occurred on January 1, 2013.  

Results of Operations for the Third Quarter of 2015:

Revenue (less agency commissions) on As-Reported Basis.

The table below presents our revenue (less agency commissions) or "net revenue" by type for the three-month periods ended September 30, 2015 and 2014, respectively (dollars in thousands):

Three Months Ended September 30,

2015

2014

Percent

Percent

Amount 

of Total

Amount 

of Total 

Revenue (less agency commissions):

Local

$       76,734

50.8%

$      62,029

47.1%

National

20,889

13.8%

16,158

12.3%

Internet

7,238

4.8%

7,431

5.6%

Political

4,594

3.0%

22,029

16.7%

Retransmission consent

39,329

26.0%

19,674

14.9%

Other

2,318

1.6%

4,381

3.4%

Total

$     151,102

100.0%

$    131,702

100.0%

Total revenue increased $19.4 million, or 15%, to $151.1 million for the third quarter of 2015 compared to the third quarter of 2014. Revenue from the 2015 Acquired Stations and 2014 Acquired Stations accounted for approximately $43.0 million and $24.2 million of our total revenue for the third quarters of 2015 and 2014, respectively. 

Our revenue increased primarily due to the additional revenue from the 2015 Acquired Stations and 2014 Acquired Stations and increases in retransmission consent revenue due to increased retransmission consent rates. These increases were offset in part, by decreases in political advertising revenue which decreased due to 2015 being the "off year" of the two-year election cycle.

The principal types of revenue for the third quarter of 2015 compared to the third quarter of 2014 were as follows:

  • Local advertising revenue increased $14.7 million, or 24%, to $76.7 million.
  • National advertising revenue increased $4.7 million, or 29%, to $20.9 million.
  • Internet advertising revenue decreased $0.2 million, or 3%, to $7.2 million.
  • Political advertising revenue decreased $17.4 million, or 79%, to $4.6 million.
  • Retransmission consent revenue increased $19.7 million, or 100%, to $39.3 million.
  • Other revenue decreased $2.1 million, or 47%, to $2.3 million.

Within our local and national advertising revenue categories, and excluding revenue from the 2015 Acquired Stations and 2014 Acquired Stations, our five largest customer categories experienced the following changes during the third quarter of 2015 compared to the third quarter of 2014:

  • Automotive increased 12%;
  • Medical increased 18%;
  • Restaurant increased 13%;
  • Furniture and appliances increased 21%; and
  • Communications increased 11%.

Revenue on Combined Historical Basis.

On a Combined Historical Basis, total revenue increased $3.0 million, or 2%, to $155.1 million in the third quarter of 2015 compared to the third quarter of 2014. On a Combined Historical Basis, the principal types of revenue for the third quarter of 2015 compared to the third quarter of 2014 were approximately as follows:

  • Local advertising revenue increased $6.5 million, or 9%, to $77.8 million.
  • National advertising revenue increased $2.0 million, or 10%, to $22.6 million.
  • Internet advertising revenue decreased $0.3 million, or 3%, to $7.4 million.
  • Political advertising revenue decreased $20.3 million, or 80%, to $4.9 million.
  • Retransmission consent revenue increased $17.5 million, or 78%, to $39.9 million.
  • Other revenue decreased $2.5 million, or 51%, to $2.4 million.

Within our local and national advertising revenue categories, and including the 2015 Acquired Stations and 2014 Acquired Stations, our five largest customer categories experienced the following changes in revenue for the third quarter of 2015 compared to the third quarter of 2014:

  • Automotive increased 17%;
  • Medical increased 21%;
  • Restaurant increased 14%;
  • Furniture and appliances increased 29%; and
  • Communications increased 26%.

Broadcast Operating Expenses on As-Reported Basis

Broadcast expenses (before depreciation, amortization and loss on disposal of assets) increased $25.7 million, or 35%, to $98.9 million for the third quarter of 2015 compared to the third quarter of 2014. The 2015 Acquired Stations and 2014 Acquired Stations accounted for approximately $24.0 million and $12.7 million of our total broadcast expenses for the third quarters of 2015 and 2014, respectively. 

  • Non-compensation expense increased $19.8 million primarily due to network program fees that increased $12.7 million reflecting increased fees payable to networks under our affiliation agreements renewed in 2014, as well as the commencement, in the first quarter of 2015, of network program fees payable to CBS. National sales commissions increased $5.3 million primarily as a result of the $6.1 million charge resulting from our decision to terminate nearly all of our remaining national advertising sales representation agreements effective on January 1, 2016. All other operating expenses increased as a result of the 2015 Acquired Stations and 2014 Acquired Stations.
  • Compensation expense increased by $5.9 million, primarily as a result of $5.5 million in additional salary expense and bonus accruals primarily from the added compensation expenses from the 2015 Acquired Stations and 2014 Acquired Stations. These added costs were offset, in part, by a decrease in $0.5 million in employee retirement expense. Non-cash share based compensation expenses were $0.2 million in the third quarter of 2015 compared to $0.3 million in the third quarter of 2014.

Broadcast Operating Expenses on Combined Historical Basis

On a Combined Historical Basis, broadcast expenses (before depreciation, amortization and loss on disposal of assets) increased $15.4 million, or 18%, to $101.0 million for the third quarter of 2015 compared to the third quarter of 2014. The increase reflects, in part, the following:

  • Network program fees increased $11.8 million consistent with the growth of retransmission consent revenue under our network affiliation agreements renewed in 2014, as well as the commencement in the first quarter of 2015, of network program fees payable to CBS. National sales commissions increased $5.0 million primarily as a result of the $6.1 million charge resulting from our decision to terminate nearly all of our remaining national advertising sales representation agreements effective on January 1, 2016. These increases were offset, in part, by decreases in other programming fees, news services and promotions that together decreased by approximately $1.0 million.
  • Compensation expense increased by approximately $0.1 million in the third quarter of 2015 compared to the third quarter of 2014. Non-cash share based compensation expenses were $0.2 million in the third quarter of 2015 compared to $0.3 million in the third quarter of 2014.

Corporate and Administrative Operating Expenses on As-Reported Basis.

Corporate and administrative expenses (before depreciation, amortization and loss on disposal of assets) increased $4.8 million, or 90%, to $10.0 million in the third quarter of 2015 as compared to the third quarter of 2014. The increase reflects, in part, the following:

  • Non-compensation expense increased $3.9 million in the 2015 three-month period primarily due to professional fees related to the acquisition of the 2015 Acquired Stations compared to professional fees incurred in the 2014 three-month period related to acquisition of the 2014 Acquired Stations.
  • Compensation expense increased $0.9 million primarily due to increases in incentive compensation and relocation costs offset, in part, by reductions in employee retirement expenses. Non-cash share based compensation expenses were $0.8 million in the third quarter of 2015 compared to $0.7 million in the third quarter of 2014.

Results of Operations for the Nine-Months Ended September 30, 2015:

Revenue (less agency commissions) on As-Reported Basis.    

The table below presents our revenue (less agency commissions) or "net revenue" by type for the nine-months ended September 30, 2015 and 2014, respectively (dollars in thousands):

Nine Months Ended September 30,

2015

2014

Percent

Percent

Amount 

of Total

Amount 

of Total 

Revenue (less agency commissions):

Local

$    221,118

51.7%

$    169,751

51.4%

National

57,605

13.5%

44,332

13.4%

Internet

20,810

4.9%

20,676

6.3%

Political

7,950

1.9%

33,437

10.1%

Retransmission consent

112,489

26.3%

53,450

16.2%

Other

7,897

1.7%

8,602

2.6%

Total

$    427,869

100.0%

$    330,248

100.0%

Total revenue increased $97.6 million, or 30%, to $427.9 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. Revenue from the 2015 Acquired Stations and 2014 Acquired Stations accounted for approximately $109.9 million and $29.4 million of our total revenue for the nine months ended September 30, 2015 and 2014, respectively. 

Our revenue increased primarily due to the additional revenue from the 2015 Acquired Stations and 2014 Acquired Stations and increases in retransmission consent revenue due to increased retransmission consent rates. These increases were offset in part, by decreases in political advertising revenue due to 2015 being the "off year" of the two-year election cycle.

The principal types of revenue for the nine-months ended September 30, 2015 compared to the nine-months ended September 30, 2014 were as follows:

  • Local advertising revenue increased $51.4 million, or 30%, to $221.1 million.
  • National advertising revenue increased $13.3 million, or 30%, to $57.6 million.
  • Internet advertising revenue increased $0.1 million, or 1%, to $20.8 million.
  • Political advertising revenue decreased $25.5 million, or 76%, to $8.0 million.
  • Retransmission consent revenue increased $59.0 million, or 110%, to $112.5 million.
  • Other revenue decreased $0.7 million, or 8%, to $7.9 million.

Within our local and national advertising revenue categories, and excluding revenue from the 2015 Acquired Stations and 2014 Acquired Stations, our five largest customer categories experienced the following changes during the nine-months ended September 30, 2015 compared to the nine-months ended September 30, 2014:

  • Automotive increased 2%;
  • Medical increased 10%;
  • Restaurant increased 5%;
  • Furniture and appliances increased 11%; and
  • Communications decreased 2%.

Revenue on Combined Historical Basis.

On a Combined Historical Basis, total revenue increased $25.0 million, or 6%, to $454.0 million for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. On a Combined Historical Basis the principal types of revenue for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 were approximately as follows:

  • Local advertising revenue increased $12.3 million, or 6%, to $232.4 million.
  • National advertising revenue increased $2.7 million, or 4%, to $66.1 million.
  • Internet advertising revenue decreased $1.2 million, or 5%, to $21.3 million.
  • Political advertising revenue decreased $32.0 million, or 79%, to $8.5 million.
  • Retransmission consent revenue increased $48.9 million, or 72%, to $116.9 million.
  • Other revenue decreased $5.7 million, or 39%, to $8.9 million.

Within our local and national advertising revenue categories, and including the 2015 Acquired Stations and 2014 Acquired Stations, our five largest customer categories experienced the following changes in revenue during the nine-months ended September 30, 2015 compared to the nine-months ended September 30, 2014:

  • Automotive increased 6%;
  • Medical increased 13%;
  • Restaurant increased 8%;
  • Furniture and appliances increased 15%; and
  • Communications increased 12%.

Broadcast Operating Expenses on As-Reported Basis

Broadcast expenses (before depreciation, amortization and loss on disposal of assets) increased $72.6 million, or 36%, to $272.2 million for the nine-months ended September 30, 2015 compared to the nine-months ended September 30, 2014. The 2015 Acquired Stations and the 2014 Acquired Stations accounted for approximately $63.0 million and $15.6 million of our total broadcast expenses for the nine months ended September 30, 2015 and 2014, respectively. 

  • Non-compensation expense increased $51.0 million primarily due to network affiliation fees that increased $38.5 million reflecting increased fees payable to networks under our affiliation agreements renewed in 2014, as well as, the commencement in the first quarter of 2015, of network program fees payable to CBS. Other programming costs increased $1.7 million. National sales commissions increased $5.1 million primarily as a result of the $6.1 million charge resulting from our decision to terminate nearly all of our remaining national advertising sales representation agreements effective on January 1, 2016.
  • Compensation expense increased $21.6 million primarily from the added compensation expenses from the 2015 Acquired Stations and 2014 Acquired Stations. Non-cash share based compensation expenses were $0.7 million in the nine-months ended September 30, 2015 compared to $1.2 million in the nine-months ended September 30, 2014.

Broadcast Operating Expenses on Combined Historical Basis. 

On a Combined Historical Basis, broadcast expenses (before depreciation, amortization and loss on disposal of assets) increased $30.9 million, or 12%, to $289.4 million for the nine-months ended September 30, 2015 compared to the nine-months ended September 30, 2014. The increase reflects, in part, the following:

  • Network program fees increased $34.3 million consistent with the growth of the related retransmission consent revenue under our network affiliation agreements renewed in 2014, as well as the commencement in the first quarter of 2015, of network program fees payable to CBS. National sales commissions increased $4.1 million primarily as a result of the $6.1 million charge resulting from our decision to terminate nearly all of our remaining national advertising sales representation agreements effective on January 1, 2016. These increases were partially offset by decreases in programming fees, news services, trade expense and other professional fees that together decreased by approximately $4.1 million.
  • Compensation expense decreased $2.0 million, primarily as a result of a $3.8 million non-recurring non-cash charge in 2014 incurred to implement changes to our paid-time-off policy. Non-cash share based compensation expenses were $0.7 million in the nine-months ended September 30, 2015, compared to $1.2 million in the nine-months ended September 30, 2014.

Corporate and Administrative Operating Expenses on As-Reported Basis. 

Corporate and administrative expenses (before depreciation, amortization and loss on disposal of assets) increased $1.7 million, or 8%, to $23.3 million in the nine-months ended September 30, 2015 compared to the nine-months ended September 30, 2014. The net increase reflects, in part, the following:

  • Non-compensation expense decreased primarily as a result of a decrease in professional fees related to our acquisitions. In the nine-months ended September 30, 2015, these fees totaled $4.5 million compared to $5.7 million in the nine-months ended September 30, 2014.
  • Compensation expense increased $2.0 million primarily due to increases in incentive compensation, relocation costs and routine increases in salary expense. Non-cash share based compensation expenses were $2.3 million in the nine-months ended September 30, 2015 compared to $2.8 million in the nine-months ended September 30, 2014.

Detailed table of operating results:

Gray Television, Inc.

Selected Operating Data (Unaudited)

(in thousands except for net income per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2015

2014

2015

2014

Revenue (less agency commissions)

$ 151,102

$ 131,702

$ 427,869

$ 330,248

Operating expenses before depreciation, amortization

and loss on disposal of assets, net:

Broadcast

98,921

73,218

272,213

199,604

Corporate and administrative

10,022

5,271

23,313

21,618

Depreciation

9,354

8,228

26,906

21,598

Amortization of intangible assets

3,213

3,823

8,715

5,291

Loss on disposal of assets, net

248

6

562

385

Operating expenses

121,758

90,546

331,709

248,496

Operating income

29,344

41,156

96,160

81,752

Other income (expense):

Miscellaneous income, net

28

11

102

14

Interest expense

(18,645)

(18,619)

(55,762)

(49,718)

Loss from early extinguishment of debt

-

-

-

(4,897)

Income before income tax

10,727

22,548

40,500

27,151

Income tax expense

4,118

8,608

16,186

10,343

Net income

$     6,609

$   13,940

$   24,314

$   16,808

Basic per share information:

Net income

$      0.09

$      0.24

$      0.36

$      0.29

Weighted-average shares outstanding

71,638

57,863

67,215

57,857

Diluted per share information:

Net income

$      0.09

$      0.24

$      0.36

$      0.29

Weighted-average shares outstanding

72,341

58,394

67,824

58,330

Political advertising revenue (less agency commissions)

$     4,594

$   22,029

$     7,950

$   33,437

Revenue related to Olympic broadcasts (less agency

commissions)

$           -

$           -

$           -

$     3,778

 

Other Financial Data:

September 30, 2015

December 31, 2014

(in thousands)

Cash

$                     81,169

$                    30,769

Long-term debt including current portion

$                1,235,753

$               1,236,401

Borrowing availability under our senior credit facility

$                     50,000

$                    50,000

Nine Months Ended September 30,

2015

2014

(in thousands)

Net cash provided by operating activities

$                     82,718

$                    88,404

Net cash used in investing activities

(199,635)

(477,066)

Net cash provided by financing activities

167,317

454,991

Net increase in cash

$                     50,400

$                    66,329

 

Guidance for the Three Months Ending December 31, 2015 (the "fourth quarter of 2015"):  

We currently anticipate that our results of operations for the fourth quarter of 2015 will be within the ranges presented in the table below. This guidance does not include the anticipated results of the announced but not yet completed Schurz Acquisition and related transactions.

Low End

% Change

High End

% Change

Guidance for

From

Guidance for

From

Actual

the Fourth

Actual Fourth

the Fourth

Actual Fourth

Fourth

Quarter of

Quarter of

Quarter of

Quarter of

Quarter of

Selected operating data:

2015

2014

2015

2014

2014

(dollars in thousands)

OPERATING REVENUE:

Revenue (less agency commissions)

$   162,000

(9)%

$   164,000

(8)%

$ 177,886

OPERATING EXPENSES

(before depreciation, amortization and

gain on disposals of assets):

Broadcast

$    99,000

15 %

$   102,000

18 %

$  86,386

Corporate and administrative

$      9,000

19 %

$     10,000

32 %

$    7,585

OTHER SELECTED DATA:

Political advertising revenue

(less agency commissions)

$      5,000

(90)%

$      6,000

(88)%

$  48,538

 

Comments on Fourth Quarter 2015 Guidance: 

Revenue on As-Reported Basis.

Based on our current forecasts for the fourth quarter of 2015, we anticipate the following changes from the three-months ended December 31, 2014 (the "fourth quarter of 2014") as outlined below. Our total revenue estimates for the fourth quarter of 2015 include approximately $14.1 million of revenue estimated to be contributed by the 2015 Acquired Stations.

  • We believe our fourth quarter of 2015 local advertising revenue, excluding political advertising revenue, will increase from the fourth quarter of 2014 by approximately 10% to 12%.
  • We believe our fourth quarter of 2015 national advertising revenue, excluding political advertising revenue, will increase from the fourth quarter of 2014 by approximately 13% to 15%.
  • Consistent with the "off year" of the two-year election cycle, we believe our fourth quarter of 2015 political advertising revenue will decrease from the fourth quarter of 2014 by approximately 85%.
  • We believe our fourth quarter of 2015 retransmission consent revenue will increase from the fourth quarter of 2014 by approximately 83% to $39.1 million.

Broadcast Operating Expenses (before depreciation, amortization and gain on disposal of assets) on As-Reported Basis. 

For the fourth quarter of 2015, we anticipate our broadcast operating expenses will increase from the fourth quarter of 2014, reflecting anticipated increases in payroll and related employee benefits. We anticipate that our broadcast operating expenses will also reflect increases in network fees of approximately $12.3 million. Operating expenses to be incurred collectively by the 2015 Acquired Stations in the fourth quarter of 2015 are expected to be approximately $6.1 million. For the fourth quarter of 2014, the 2014 Acquired Stations reported $22.4 million of broadcast operating expense.

Corporate and Administrative Operating Expenses (before depreciation, amortization and gain on disposal of assets) on As-Reported Basis.

For the fourth quarter of 2015, we anticipate our corporate and administrative operating expense will increase to approximately $9.5 million, reflecting an anticipated increase of approximately $3.5 million of acquisition related expenses from the fourth quarter of 2014. In addition, assuming the Schurz Acquisition is closed in the fourth quarter of 2015, we currently estimate that we would incur an additional $5.0 million to $7.0 million of acquisition related fees and expenses.

Fourth Quarter of 2015 on Combined Historical Basis.

Based on our current forecasts for the fourth quarter of 2015, we anticipate the following changes from the Combined Historical Basis for the fourth quarter of 2014 as outlined below. For the purposes hereof, our Combined Historical Basis for the fourth quarter of 2014 has been adjusted to give effect to both the 2015 Acquired Stations and the 2014 Acquired Stations.

Revenue on Combined Historical Basis:

  • We believe our fourth quarter of 2015 total revenue will decrease by approximately 15% to 17%, to approximately $162.0 million to $164.0 million, as a result of the "off year" of the two-year election cycle.
  • We believe our fourth quarter of 2015 local advertising revenue, excluding political advertising revenue, will increase by approximately 3% to 5%, to approximately $85.0 million.
  • We believe our fourth quarter of 2015 national advertising revenue, excluding political advertising revenue, will decrease by approximately 2% to 3%, to approximately $24.0 million.
  • Consistent with the "off year" of the two year election cycle, we believe our fourth quarter of 2015 political advertising revenue will decrease from the fourth quarter of 2014 by approximately 86%.
  • We believe our fourth quarter of 2015 retransmission consent revenue will increase by approximately 72%, or $16.1 million, to approximately $39.1 million.

Broadcast Operating Expenses (before depreciation, amortization and gain or loss on disposal of assets) on Combined Historical Basis: 

Our total broadcast operating expenses for the fourth quarter of 2015 are anticipated to increase from the fourth quarter of 2014 by approximately $5.5 million to $99.5 million.  This increase primarily reflects an expected increase of $11.8 million in network affiliation expense to approximately $18.5 million for the fourth quarter of 2015 offset, in part, by decreases in national sales commissions and other professional fees. Consistent with our strategy, and the realization of our operating synergies, we believe that our Combined Historical Basis broadcast compensation costs will be unchanged in the fourth quarter of 2015, compared to the fourth quarter of 2014.

Non-GAAP Terms

From time to time, Gray supplements its financial results prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") by disclosing the non-GAAP financial measures Broadcast Cash Flow, Broadcast Cash Flow Less Cash Corporate Expenses, operating cash flow as defined in Gray's 2014 senior credit facility ("Operating Cash Flow") and Free Cash Flow. These non-GAAP amounts are used by us to approximate the amount used to calculate a key financial performance covenant contained in our debt agreements. These non-GAAP amounts may also be provided on an As-Reported Basis as well as a Combined Historical Basis.

Broadcast Cash Flow is defined as net income plus loss on early extinguishment of debt, corporate and administrative expenses, broadcast non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, interest expense, any income tax expense, non-cash 401(k) expense, less any gain on disposal of assets, any miscellaneous income, any income tax benefits, payments for program broadcast obligations and network compensation revenue. 

Broadcast Cash Flow Less Cash Corporate Expenses is defined as net income plus loss from early extinguishment of debt, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, interest expense, any income tax expense, non-cash 401(k) expense less any gain on disposal of assets, any miscellaneous income, any income tax benefits, payments for program broadcast obligations and network compensation revenue. 

Operating Cash Flow is defined in Gray's 2014 senior credit facility as defined as net income plus loss from early extinguishment of debt, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, interest expense, any income tax expense, non-cash 401(k) expense less any gain on disposal of assets, any miscellaneous income, any income tax benefits, payments for program broadcast obligations, network compensation revenue, plus pension expense but less cash contributions to pension plans.

Free Cash Flow is defined as net income plus loss on early extinguishment of debt, non-cash stock based compensation, depreciation and amortization (including amortization of intangible assets and program broadcast rights), any loss on disposal of assets, any miscellaneous expense, amortization of deferred financing costs, any income tax expense, non-cash 401(k) expense, pension expense less any gain on disposal of assets, any miscellaneous income, any income tax benefits, payments for program broadcast obligations, network compensation revenue, contributions to pension plans, amortization of original issue discount on our debt, capital expenditures (net of any insurance proceeds) and the payment of income taxes (net of any refunds received). 

These non-GAAP terms are not defined in GAAP and our definitions may differ from, and therefore not be comparable to, similarly titled measures used by other companies, thereby limiting their usefulness. Such terms are used by management in addition to and in conjunction with results presented in accordance with GAAP and should be considered as supplements to, and not as substitutes for, net income and cash flows reported in accordance with GAAP.

Reconciliation on As-Reported Basis - Quarter: Reconciliation of net income to the non-GAAP terms, in thousands:

Three Months Ended

September 30,

2015

2014

2013

Net income

$    6,609

$  13,940

$     7,073

Adjustments to reconcile from net income to 

  Broadcast Cash Flow Less Cash Corporate Expenses:

Depreciation

9,354

8,228

6,024

Amortization of intangible assets

3,213

3,823

9

Non-cash stock based compensation

1,009

981

255

Loss on disposal of assets, net

248

6

49

Miscellaneous income, net

(28)

(11)

-

Interest expense

18,645

18,619

12,656

Income tax expense

4,118

8,608

4,491

Amortization of program broadcast rights

3,677

3,309

2,829

Common stock contributed to 401(k) plan 

excluding corporate 401(k) contributions

6

6

7

Network compensation revenue recognized

-

(122)

(156)

Payments for program broadcast rights

(3,417)

(3,502)

(2,849)

Corporate and administrative expenses excluding 

depreciation, amortization of intangible assets and

non-cash stock based compensation

9,233

4,544

4,215

Broadcast Cash Flow

52,667

58,429

34,603

Corporate and administrative expenses excluding 

depreciation, amortization of intangible assets and

non-cash stock based compensation

(9,233)

(4,544)

(4,215)

Broadcast Cash Flow Less Cash Corporate Expenses

43,434

53,885

30,388

Pension expense

-

1,518

2,156

Contributions to pension plans

(2,483)

(1,996)

(1,082)

Interest expense

(18,645)

(18,619)

(12,656)

Amortization of deferred financing costs

799

764

412

Amortization of original issue (premium) discount

on 7 1/2% senior notes due 2020

(215)

(215)

69

Purchase of property and equipment

(6,854)

(9,996)

(5,953)

Income taxes paid, net of refunds

(427)

(32)

(15)

Free Cash Flow

$  15,609

$  25,309

$   13,319

 

Reconciliation on As-Reported Basis – Year to Date: Reconciliation of net income to the non-GAAP terms, in thousands: 

Nine Months Ended

September 30,

2015

2014

2013

Net income

$    24,314

$    16,808

$    13,087

Adjustments to reconcile from net income to 

  Broadcast Cash Flow Less Cash Corporate Expenses:

Depreciation

26,906

21,598

17,762

Amortization of intangible assets

8,715

5,291

40

Non-cash stock based compensation

3,011

4,032

1,719

Loss (gain) on disposal of assets, net

562

385

(56)

Miscellaneous income, net

(102)

(14)

-

Interest expense

55,762

49,718

37,790

Loss from early extinguishment of debt

-

4,897

-

Income tax expense

16,186

10,343

9,715

Amortization of program broadcast rights

10,837

9,227

8,492

Common stock contributed to 401(k) plan 

excluding corporate 401(k) contributions

19

18

21

Network compensation revenue recognized

-

(343)

(470)

Payments for program broadcast rights

(10,558)

(11,194)

(8,549)

Corporate and administrative expenses excluding 

depreciation, amortization of intangible assets and

non-cash stock based compensation

20,983

18,812

11,868

Broadcast Cash Flow

$  156,635

$  129,578

$    91,419

Corporate and administrative expenses excluding 

depreciation, amortization of intangible assets and

non-cash stock based compensation

(20,983)

(18,812)

(11,868)

Broadcast Cash Flow Less Cash Corporate Expenses

$  135,652

$  110,766

$    79,551

Pension expense

4,190

4,611

6,464

Contributions to pension plans

(3,916)

(4,713)

(3,686)

Interest expense

(55,762)

(49,718)

(37,790)

Amortization of deferred financing costs

2,396

2,158

1,235

Amortization of original issue (premium) discount

on 7 1/2% senior notes due 2020

(647)

(647)

206

Purchase of property and equipment

(15,250)

(20,452)

(18,441)

Income taxes paid, net of refunds

(1,675)

(361)

(518)

Free Cash Flow

$    64,988

$    41,644

$    27,021

 

Reconciliation on Combined Historical Basis - Quarter: Reconciliation of net income to the non-GAAP terms, in thousands:

Three Months Ended

September 30,

2015

2014

2013

Net income

$            8,276

$          17,033

$         10,804

Adjustments to reconcile from net income to Broadcast Cash

  Flow Less Cash Corporate Expenses:

Depreciation

9,611

9,492

8,723

Amortization of intangible assets

3,213

3,940

430

Non-cash stock-based compensation

1,009

981

255

Loss on disposal of assets, net

248

6

49

Miscellaneous expense (income), net

(32)

(11)

-

Interest expense

18,645

18,914

18,877

Income tax expense

4,118

10,005

5,054

Amortization of program broadcast rights

3,677

3,309

2,829

Common stock contributed to 401(k) plan 

excluding corporate 401(k) contributions

6

6

7

Network compensation revenue recognized

-

(122)

(156)

Payments for program broadcast rights

(3,417)

(3,502)

(2,849)

Corporate and administrative expenses excluding

depreciation, amortization of intangible assets and 

non-cash stock-based compensation

9,233

4,544

4,215

Other

4,326

1,073

673

Broadcast Cash Flow

58,913

65,668

48,911

Corporate and administrative expenses excluding

depreciation, amortization of intangible assets and 

non-cash stock-based compensation

(9,233)

(4,544)

(4,215)

Broadcast Cash Flow Less Cash Corporate Expenses

49,680

61,124

44,696

Pension expense

-

1,518

2,156

Contributions to pension plans

(2,483)

(1,996)

(1,082)

Other

761

2,988

3,731

Operating Cash Flow as defined in Senior Credit Agreement

47,958

63,634

49,501

Interest expense

(18,645)

(18,914)

(18,877)

Amortization of deferred financing costs

799

764

412

Amortization of net original issue discount (premium)

on 7 1/2% senior notes due 2020

(215)

(215)

69

Purchase of property and equipment

(6,854)

(9,996)

(6,703)

Income taxes paid, net of refunds

(427)

(32)

(15)

Free Cash Flow

$          22,616

$          35,241

$         24,387

 

Reconciliation on Combined Historical Basis – Year to Date: Reconciliation of net income to the non-GAAP terms, in thousands:

Nine Months Ended

September 30,

2015

2014

2013

Net income

$          31,297

$          37,667

$         23,062

Adjustments to reconcile from net income to Broadcast Cash

  Flow Less Cash Corporate Expenses:

Depreciation

28,510

27,585

26,106

Amortization of intangible assets

8,804

6,000

1,297

Non-cash stock-based compensation

3,011

4,032

1,719

Loss (gain) on disposal of assets, net

562

385

(56)

Miscellaneous expense (income), net

(37)

3,122

4,378

Interest expense

55,946

55,711

56,013

Loss from early extinguishment of debt

-

4,897

-

Income tax expense

16,186

13,464

11,390

Amortization of program broadcast rights

10,837

9,227

8,492

Common stock contributed to 401(k) plan 

excluding corporate 401(k) contributions

19

18

21

Network compensation revenue recognized

-

(343)

(470)

Payments for program broadcast rights

(10,558)

(11,194)

(8,549)

Corporate and administrative expenses excluding

depreciation, amortization of intangible assets and 

non-cash stock-based compensation

20,983

18,812

11,868

Other

4,406

6,499

(1,166)

Broadcast Cash Flow

169,966

175,882

134,105

Corporate and administrative expenses excluding

depreciation, amortization of intangible assets and 

non-cash stock-based compensation

(20,983)

(18,812)

(11,868)

Broadcast Cash Flow Less Cash Corporate Expenses

148,983

157,070

122,237

Pension expense

4,190

4,611

6,464

Contributions to pension plans

(3,916)

(4,713)

(3,686)

Other

5,131

5,694

9,496

Operating Cash Flow as defined in Senior Credit Agreement

154,388

162,662

134,511

Interest expense

(55,946)

(55,711)

(56,013)

Amortization of deferred financing costs

2,396

2,158

1,235

Amortization of net original issue discount (premium)

on 7 1/2% senior notes due 2020

(647)

(647)

206

Purchase of property and equipment

(15,250)

(20,452)

(20,691)

Income taxes paid, net of refunds

(1,675)

(361)

(518)

Free Cash Flow

$          83,266

$          87,649

$         58,730

 

The Company

We are a television broadcast company headquartered in Atlanta, Georgia, that owns and operates television stations and leading digital assets in markets throughout the United States. Upon the consummation of all announced transactions (including announced divestitures), we will own and/or operate television stations in 50 television markets that broadcast over 175 program streams including 35 channels affiliated with the CBS Network, 26 channels affiliated with the NBC Network, 19 channels affiliated with the ABC Network and 14 channels affiliated with the FOX Network.  We will then own the number-one ranked television station in 40 of those 50 markets and the number-one or number-two ranked television station operations in 49 of those 50 markets.  At that time, our stations will reach approximately 9.4 percent of total United States television households. 

Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act

This press release contains statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and the federal securities laws.  These "forward-looking statements" are not statements of historical facts, and may include, among other things, statements regarding our current expectations and beliefs of operating results for the fourth quarter of 2015 or other periods, the impact of recently completed transactions, future expenses, the completion of pending transactions and other future events.  Actual results are subject to a number of risks and uncertainties and may differ materially from the current expectations and beliefs discussed in this press release. All information set forth in this release is as of November 3, 2015.  We do not intend, and undertake no duty, to update this information to reflect future events or circumstances. Information about certain potential factors that could affect our business and financial results and cause actual results to differ materially from those expressed or implied in any forward-looking statements are included under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the year ended December 31, 2014 and may be contained in reports subsequently filed with the U.S. Securities and Exchange Commission (the "SEC") and available at the SEC's website at www.sec.gov.

Conference Call Information

Gray Television, Inc. will host a conference call to discuss its third quarter operating results on November 3, 2015.  The call will begin at 11:00 AM Eastern Time.  The live dial-in number is 1 (888) 572-7033 and the confirmation code is 1413155.  The call will be webcast live and available for replay at www.gray.tv.  The taped replay of the conference call will be available at 1 (888) 203-1112, Confirmation Code: 1413155 until December 3, 2015.

Web site:  www.gray.tv

SOURCE Gray Television, Inc.



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